Question 1

Normative analysis focuses on statements that can be tested against real-world data.

Accepted Answer

A) True 
 B)False

Question 2

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. What would an economist conclude?

Accepted Answer

A)  In the man's judgment, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost. 
B)  In the man's judgment, the expected marginal cost of smoking the cigarette outweighs the expected marginal benefit. 
C)  The man is behaving irrationally. 
D)  The man has a positive marginal benefit. 
A)  In the man's judgment, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost. 
B)  In the man's judgment, the expected marginal cost of smoking the cigarette outweighs the expected marginal benefit. 
C)  The man is behaving irrationally. 
D)  The man has a positive marginal benefit.

Question 3

Which of the following best illustrates the fallacy of composition?

Accepted Answer

A)  A great many people have been immunized against polio because it can be such a devastating disease. As a result, I probably do not personally need to be immunized against polio. 
B)  I hate driving to work when the traffic is so heavy, so I decide to leave 30 minutes earlier than in the past. If everyone were to leave 30 minutes earlier for work, we'd all get to work faster. 
C)  Whenever I attend a hockey game at the local arena, the home team wins. Therefore, if I attend all of the team's local games, they will achieve a perfect winning record at home. 
D)  The parking at York University is in short supply on the main campus. It would be better for more people to ride the bus to school. 
A)  A great many people have been immunized against polio because it can be such a devastating disease. As a result, I probably do not personally need to be immunized against polio. 
B)  I hate driving to work when the traffic is so heavy, so I decide to leave 30 minutes earlier than in the past. If everyone were to leave 30 minutes earlier for work, we'd all get to work faster. 
C)  Whenever I attend a hockey game at the local arena, the home team wins. Therefore, if I attend all of the team's local games, they will achieve a perfect winning record at home. 
D)  The parking at York University is in short supply on the main campus. It would be better for more people to ride the bus to school.

Question 4

Which of the following lies primarily within the realm of microeconomics?

Accepted Answer

A)  an economic model forecasting the impact of a tax increase on consumer spending and national output 
B)  a model forecasting the impact of a change in interest rates on the level of investment in the economy 
C)  an empirical analysis of the relationship between the growth of the money supply and the rate of inflation 
D)  a study of supply and demand conditions in the market for orange juice 
A)  an economic model forecasting the impact of a tax increase on consumer spending and national output 
B)  a model forecasting the impact of a change in interest rates on the level of investment in the economy 
C)  an empirical analysis of the relationship between the growth of the money supply and the rate of inflation 
D)  a study of supply and demand conditions in the market for orange juice

Question 5

Which of the following is a normative statement?

Accepted Answer

A)  Running government budget deficits leads to higher market interest rates. 
B)  An increase in taxes will cause higher unemployment. 
C)  An increase in tariffs will increase the domestic prices paid by consumers. 
D)  Income should be redistributed from the top 2 percent of wage earners to the lower income brackets. 
A)  Running government budget deficits leads to higher market interest rates. 
B)  An increase in taxes will cause higher unemployment. 
C)  An increase in tariffs will increase the domestic prices paid by consumers. 
D)  Income should be redistributed from the top 2 percent of wage earners to the lower income brackets.

Question 6

A student football team manager examined variables influencing the team's record and concluded that the best scores resulted when the "third-string" team played the most minutes. Therefore he recommended that the third-string team become the first team. Why is this conclusion probably erroneous?

Accepted Answer

A)  He failed to recognize that correlation is not causation. 
B)  He did not review the entire game strategy carefully enough. 
C)  He committed the fallacy of composition. 
D)  He confused positive and normative analysis. 
A)  He failed to recognize that correlation is not causation. 
B)  He did not review the entire game strategy carefully enough. 
C)  He committed the fallacy of composition. 
D)  He confused positive and normative analysis.

Question 7

What would an economist predict would happen if airfares to Europe were to increase?

Accepted Answer

A)  Airlines would make significantly greater profits. 
B)  Most people would not change their travel and vacation plans. 
C)  More individuals would choose to fly to Europe because now it is a more valuable experience. 
D)  Many individuals would substitute toward other travel destinations. 
A)  Airlines would make significantly greater profits. 
B)  Most people would not change their travel and vacation plans. 
C)  More individuals would choose to fly to Europe because now it is a more valuable experience. 
D)  Many individuals would substitute toward other travel destinations.

Question 8

The United Nations asks you to help it understand the causes of income disparities around the world. You develop the following two hypotheses. Test each hypothesis against the given facts, identify which fits the facts better, and offer a theory based on your observation.
I. Countries with high populations have lower incomes because the large supply of labour drives down the wage rate.
II. Countries with high literacy rates have higher incomes because labour is more productive.
 
Source: CIA World Factbook http://www.odci.gov/cia/publications/factbook/index.html

Accepted Answer

This data supports hypothesis II better

Question 9

Which of the following statements most accurately describes the concept of economic theory?

Accepted Answer

A)  It should be as detailed as possible in order to model the complexity of an economy. 
B)  It is an abstraction from reality. 
C)  It is only useful if it rests on realistic assumptions. 
D)  It is unrealistic and therefore of questionable usefulness in explaining what occurs in a complex economy. 
A)  It should be as detailed as possible in order to model the complexity of an economy. 
B)  It is an abstraction from reality. 
C)  It is only useful if it rests on realistic assumptions. 
D)  It is unrealistic and therefore of questionable usefulness in explaining what occurs in a complex economy.

Question 10

What does macroeconomics primarily examine?

Accepted Answer

A)  broad issues such as national output, employment, and inflation 
B)  how prices are determined within individual markets 
C)  the behaviour of individual households and firms 
D)  the output levels that maximize the profits of business firms 
A)  broad issues such as national output, employment, and inflation 
B)  how prices are determined within individual markets 
C)  the behaviour of individual households and firms 
D)  the output levels that maximize the profits of business firms

Question 11

Which of the following is NOT an example of a capital resource?

Accepted Answer

A)  a commercial sewing machine 
B)  a pitch fork 
C)  100 hectares of farmland in Central Ontario 
D)  the expertise of a computer programmer 
A)  a commercial sewing machine 
B)  a pitch fork 
C)  100 hectares of farmland in Central Ontario 
D)  the expertise of a computer programmer

Question 12

The marginal benefit to a consumer from viewing theatrical-release films each month:
TABLE 1-4
  
-Refer to Table 1-4. If the price of a movie ticket is $8, how many movie tickets will a consumer following the rule of rational choice purchase per month?

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 13

Thelma, with no money in her bank account, estimates that there is a 25 percent chance that she will get caught stealing a Porsche. According to an economist, under what circumstances might it be rational for Thelma to steal the Porsche?

Accepted Answer

A)  if the expected marginal cost exceeds the retail value of the Porsche 
B)  if her expected marginal benefit exceeds the amount of money in her bank account 
C)  if the expected marginal costs outweigh the expected marginal benefits from doing so 
D)  if the expected marginal benefits outweigh the expected marginal costs from doing so 
A)  if the expected marginal cost exceeds the retail value of the Porsche 
B)  if her expected marginal benefit exceeds the amount of money in her bank account 
C)  if the expected marginal costs outweigh the expected marginal benefits from doing so 
D)  if the expected marginal benefits outweigh the expected marginal costs from doing so

Question 14

What is the term for the branch of economics that focuses on the conduct of affairs within narrowly defined units, such as households or business firms?

Accepted Answer

A)  macroeconomics 
B)  applied economics 
C)  socioeconomics 
D)  microeconomics 
A)  macroeconomics 
B)  applied economics 
C)  socioeconomics 
D)  microeconomics

Question 15

Which of the following statements is most consistent with the rule of rational choice?

Accepted Answer

A)  Manufacturers of automobiles should seek to make cars safer, no matter the costs involved. 
B)  Police forces should be enlarged until virtually all crime is eliminated. 
C)  Environment Canada should strive to eliminate virtually all air and water pollution. 
D)  When evaluating new prescription drugs, Health Canada should weigh each drug's potential health benefits against the potential health risks posed by known side effects. 
A)  Manufacturers of automobiles should seek to make cars safer, no matter the costs involved. 
B)  Police forces should be enlarged until virtually all crime is eliminated. 
C)  Environment Canada should strive to eliminate virtually all air and water pollution. 
D)  When evaluating new prescription drugs, Health Canada should weigh each drug's potential health benefits against the potential health risks posed by known side effects.

Question 16

Which of the following statements most likely lies within the realm of microeconomics?

Accepted Answer

A)  An increase in government spending will increase the aggregate demand for goods and services in the economy. 
B)  An increase in labour costs will increase the cost of producing another airplane. 
C)  Unemployment rises during a recession and falls during an expansion. 
D)  A rapid acceleration of the supply of money may create inflation. 
A)  An increase in government spending will increase the aggregate demand for goods and services in the economy. 
B)  An increase in labour costs will increase the cost of producing another airplane. 
C)  Unemployment rises during a recession and falls during an expansion. 
D)  A rapid acceleration of the supply of money may create inflation.

Question 17

Which of the following statements about positive incentives is the most accurate?

Accepted Answer

A)  They create additional taxes on behaviours. 
B)  They increase benefits and increase costs 
C)  They increase benefits or reduce costs. 
D)  They decrease benefits or increase costs. 
A)  They create additional taxes on behaviours. 
B)  They increase benefits and increase costs 
C)  They increase benefits or reduce costs. 
D)  They decrease benefits or increase costs.

Question 18

The main concern of economics is to study how well the stock markets are performing.

Accepted Answer

A) True 
 B)False

Question 19

A university offers a free shuttle service around campus. What is the opportunity cost of the shuttle service equal to?

Accepted Answer

A)  the wages paid to the shuttle drivers, plus the gasoline expenses 
B)  the wages paid to the shuttle drivers 
C)  the highest valued alternative use of the resources devoted to the shuttle program 
D)  zero, since it is free to students who want to ride 
A)  the wages paid to the shuttle drivers, plus the gasoline expenses 
B)  the wages paid to the shuttle drivers 
C)  the highest valued alternative use of the resources devoted to the shuttle program 
D)  zero, since it is free to students who want to ride

Question 20

If Canadian consumers bought more gasoline in 2007 (when prices averaged $1.30 per litre) than they did in 1980 (when prices averaged $0.40 per litre), does that mean that people buy more gasoline at higher prices?

Accepted Answer

A)  Yes, because gasoline is a luxury good that consumers willingly purchase-even at higher prices. 
B)  Yes, because gas is a necessity that is in short supply. Consumers are always willing to buy more gasoline-even at higher prices. 
C)  No, because there is too little information provided about inflation, consumer income and other variables to make an appropriate comparison. 
D)  No, because prices cannot be compared over time. 
A)  Yes, because gasoline is a luxury good that consumers willingly purchase-even at higher prices. 
B)  Yes, because gas is a necessity that is in short supply. Consumers are always willing to buy more gasoline-even at higher prices. 
C)  No, because there is too little information provided about inflation, consumer income and other variables to make an appropriate comparison. 
D)  No, because prices cannot be compared over time.

Normative analysis focuses on statements that can be tested against real-world data.

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. What would an economist conclude?

Which of the following best illustrates the fallacy of composition?

Which of the following lies primarily within the realm of microeconomics?

Which of the following is a normative statement?

A student football team manager examined variables influencing the team's record and concluded that the best scores resulted when the "third-string" team played the most minutes. Therefore he recommended that the third-string team become the first team. Why is this conclusion probably erroneous?

What would an economist predict would happen if airfares to Europe were to increase?

Which of the following statements most accurately describes the concept of economic theory?

What does macroeconomics primarily examine?

Which of the following is NOT an example of a capital resource?

The marginal benefit to a consumer from viewing theatrical-release films each month: TABLE 1-4 -Refer to Table 1-4. If the price of a movie ticket is $8, how many movie tickets will a consumer following the rule of rational choice purchase per month?

Thelma, with no money in her bank account, estimates that there is a 25 percent chance that she will get caught stealing a Porsche. According to an economist, under what circumstances might it be rational for Thelma to steal the Porsche?

What is the term for the branch of economics that focuses on the conduct of affairs within narrowly defined units, such as households or business firms?

Which of the following statements is most consistent with the rule of rational choice?

Which of the following statements most likely lies within the realm of microeconomics?

Which of the following statements about positive incentives is the most accurate?

The main concern of economics is to study how well the stock markets are performing.

A university offers a free shuttle service around campus. What is the opportunity cost of the shuttle service equal to?

If Canadian consumers bought more gasoline in 2007 (when prices averaged $1.30 per litre) than they did in 1980 (when prices averaged $0.40 per litre), does that mean that people buy more gasoline at higher prices?

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 1: The Role and Method of Economics

Normative analysis focuses on statements that can be tested against real-world data.

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. What would an economist conclude?

Which of the following best illustrates the fallacy of composition?

Which of the following lies primarily within the realm of microeconomics?

Which of the following is a normative statement?

A student football team manager examined variables influencing the team's record and concluded that the best scores resulted when the "third-string" team played the most minutes. Therefore he recommended that the third-string team become the first team. Why is this conclusion probably erroneous?

What would an economist predict would happen if airfares to Europe were to increase?

Which of the following statements most accurately describes the concept of economic theory?

What does macroeconomics primarily examine?

Which of the following is NOT an example of a capital resource?

The marginal benefit to a consumer from viewing theatrical-release films each month: TABLE 1-4 -Refer to Table 1-4. If the price of a movie ticket is $8, how many movie tickets will a consumer following the rule of rational choice purchase per month?

Thelma, with no money in her bank account, estimates that there is a 25 percent chance that she will get caught stealing a Porsche. According to an economist, under what circumstances might it be rational for Thelma to steal the Porsche?

What is the term for the branch of economics that focuses on the conduct of affairs within narrowly defined units, such as households or business firms?

Which of the following statements is most consistent with the rule of rational choice?

Which of the following statements most likely lies within the realm of microeconomics?

Which of the following statements about positive incentives is the most accurate?

The main concern of economics is to study how well the stock markets are performing.

A university offers a free shuttle service around campus. What is the opportunity cost of the shuttle service equal to?

If Canadian consumers bought more gasoline in 2007 (when prices averaged $1.30 per litre) than they did in 1980 (when prices averaged $0.40 per litre), does that mean that people buy more gasoline at higher prices?

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters